Investors are always looking for growth in small-cap stocks like Tantech Holdings Ltd (NASDAQ:TANH), with a market cap of US$94.43M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into TANH here.
Does TANH generate an acceptable amount of cash through operations?
TANH has built up its total debt levels in the last twelve months, from US$9.27M to US$12.18M , which is mainly comprised of near term debt. With this growth in debt, TANH’s cash and short-term investments stands at US$9.94M , ready to deploy into the business. Moreover, TANH has produced cash from operations of US$2.30M over the same time period, resulting in an operating cash to total debt ratio of 18.91%, meaning that TANH’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TANH’s case, it is able to generate 0.19x cash from its debt capital.
Does TANH’s liquid assets cover its short-term commitments?
At the current liabilities level of US$26.79M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$89.24M, with a current ratio of 3.33x. Though, a ratio greater than 3x may be considered as too high, as TANH could be holding too much capital in a low-return investment environment.
Is TANH’s debt level acceptable?
TANH’s level of debt is appropriate relative to its total equity, at 11.12%. This range is considered safe as TANH is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether TANH is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TANH’s, case, the ratio of 8.65x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving TANH ample headroom to grow its debt facilities.
Although TANH’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how TANH has been performing in the past. You should continue to research Tantech Holdings to get a better picture of the stock by looking at:
- Historical Performance: What has TANH’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.